There has been a lot written about the suicide of a young Chinese worker employed by Foxconn, a contract manufacturer that handles production for many Apple (AAPL) products. The spin in the U.S. media has been centered on Foxconn coming down like a ton of bricks on an innocent 25-year old who, perhaps through no fault of his own, misplaced one of 16 iPhone prototypes the company needed to send back to Apple. Apple is a bit secretive about its products, if you haven't noticed.

I can tell you first-hand why Apple is so stringent about secrecy, and its not only to protect is products. When I was performing research for leading hedge funds, helping them build out channel check mechanisms for technology products, not a month went by when we didn't get a request from some analyst to "get me someone with knowledge of the Apple supply chain and Foxconn in particular." This was a code word for getting inside information on Apple product plans and shipments. The hedge fund that could confirm what volume of products Apple was shipping and when could more accurately price the stock. Of course, this information is secret for a reason: leaks would dramatically move shares.
How much would hedge funds pay for this information? Thousands and thousands of dollars. To a Chinese worker making a pittance, such sums are astronomical. This is not to say definitively that Sun Danyong, the 25 year-old who jumped to his death from the 12th floor of a building last week was the thief. But it does seem likely that someone stole the missing iPhone, which was subsequently returned. In a New York Times article, a Foxconn official suggests that Sun had actually lost and then relocated several prototypes before -- which would seem to indicate a leak, as this would be an excellent strategy to get information out without raising red flags too high.

Anyone who knows how stringently Apple and other tech companies track prototypes understands the number of checks and extreme scrutiny that goes into ensuring prototypes don't fall into unfriendly hands. So letting a prototype iPhone go missing is akin to losing nuclear missile launch codes. None of this is to say that these Chinese contract manufacturers are paragons of employer virtue. If the employee was beaten, as the Chinese press has alleged (and Foxconn has denied), then the company should be punished and the guilty parties prosecuted.

On the other hand, Apple has been more or less as vigilant as any U.S.-based electronics company with outsourced production in China. Public allegations of employee mistreatment in China have been followed up by audits with Apple. And Apple cannot be blamed for the rabid hordes of investment analysts poring over LinkedIn or Chinese resume posting sites to find any way to chat with people who might have inside information on the contents of Apple's product pipeline and supply chain. In a nutshell, its very easy to bash Apple for its secrecy and equally easy to bash Foxconn as a big bad factory wolf. But there are very credible reasons for why a Foxconn employee might actually have been leaking key information and those reasons should not be discounted.

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